IMF Staff Completes 2021 Article IV Mission to Solomon Islands

IMF News, November 8, 2021

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Real GDP: projected to improve to 0.4 percent this year following a contraction in 2020.
Fiscal balance: fiscal deficit is expected to widen this year, from 2.4 percent of GDP in 2020.
Foreign reserves: about 11.5 months of prospective imports (US$708 million) as of end-October 2021, reflecting inflows from development partners, subdued imports, and the new allocation of IMF Special Drawing Rights (SDRs).
Inflation: has been muted but is expected to increase.
Labor market: conditions have deteriorated; the pandemic is likely to have disrupted progress in poverty reduction and human development.

Main risk: community transmission of COVID-19, given low vaccination rates and weaknesses in health infrastructure.
Border reopening: delays to border reopening pose a key risk to the economic recovery.
Fiscal vulnerability: a weaker fiscal position, owing largely to the impact of the pandemic on revenues and expenditures.
External and environmental risks: vulnerability to the impacts of climate change and natural disasters.
Elevated uncertainty: pandemic-related uncertainty, long-standing economic and governance challenges, and vulnerability to natural disasters pose headwinds to the recovery.

Accelerate vaccinations and continue efforts to avoid domestic COVID-19 outbreaks.
Provide transparent and well-targeted support to the most vulnerable households and businesses.
Avoid delays in government payments.
Contain expenditures in areas with weak transparency and governance practices, including Constituency Development Funds, to make room for fiscal support and address large development spending needs.
Timely and effective implementation of recent reforms: progress on the Tax Administration Bill, National Payment System and introduction of procurement regulations is welcome but requires effective implementation.

Rebuild fiscal buffers during the post-pandemic recovery to enhance resilience to shocks.
Maintain fiscal sustainability while promoting economic diversification over the medium-term.
Advance fiscal governance and public financial management reforms.
Establish a comprehensive medium-term revenue strategy.
Modernize tax administration and introduce a Value Added Tax as first steps toward comprehensive tax reforms.
Maintain a strong reserves buffer to support macroeconomic stability.
Financial sector reforms: aim to increase private sector credit growth and continue improvements in financial development and inclusion.
Strengthen the AML/CFT framework and its implementation to help safeguard financial stability.
Generate new sources of growth through effective investment in human capital and infrastructure, structural reforms, and improvements in the business environment.
Accelerate digital and green growth to foster longer-term economic transformation and improve resilience.
Strengthen enforcement of governance standards, improve transparency (including for pandemic-related spending), and advance the anti-corruption agenda.

Mission: virtual mission to Solomon Islands during October 19 to November 5, 2021 to undertake discussions for the 2021 Article IV Consultation.
IMF team leader: Mr. Jarkko Turunen.
Stakeholder engagement: extremely constructive discussions with the Governor of the Central Bank of the Solomon Islands, the Permanent Secretary of the Ministry of Finance and Treasury, other government officials, development partners, civil society and private sector representatives.
Acknowledgement: the team thanked the Solomon Islands’ authorities for their excellent cooperation.

IMF Press Release No. 21/327, November 8, 2021.